Which Is Better: SIP or PPF?

Mutual fund SIPs and PPFs offer two distinct paths to financial security. See which of these two investment choices works best for you.

by Akash Jha updated July 6, 2023, 9:54 PM 15 Views

In India, there are many ways to spend money. From the simple fixed deposit to investments in the stock market, there are many different types of assets with different risk-to-reward rates.

But when it comes to long-term investing, mutual funds and Public Provident Funds (PPF) are two of the most popular choices. This is where the trouble starts. Many people find it hard to decide between starting a SIP (Systematic Investment Plan) with a mutual fund or a PPF (Public Provident Fund).

We’ve written a detailed piece about SIP and PPF to help you decide which is the better investment option. Read on to find out all the information you need..

What is SIP?

Instead of being a type of investment, Systematic Investment Plan (SIP) is a way to invest in mutual funds automatically. When you choose a SIP, your bank account will be regularly debited on a regular schedule and a set amount of money will be placed in a mutual fund. Mutual fund contributions will be maintained until the conclusion of the investment period.

In a monthly SIP, contributions are made to a mutual fund on a regular basis until the end of the chosen term. A monthly SIP is the most common, but you also have the option of choosing a quarterly, semiannual, or annual SIP, based on your needs and preferences.

Benefits of SIP

The advantages of investing in a mutual fund through a SIP are numerous. What are they? Here’s a short glance.

Flexibility is a major benefit of SIP mutual funds. You can invest as much you like for whatever long you like, with the option to cash out at any moment.

Rupee cost averaging can be used with your ongoing SIP investments in a mutual fund. Because of this, your investment costs will be reduced while your profits will rise dramatically.

Mutual funds are market-linked, giving investors access to returns that far exceed those of more conventional investment vehicles..

What is PPF?

First, let’s define mutual fund SIP and PPF so we can compare them.

The Public Provident Fund (PPF) is a government-sponsored savings and investing program. Here, you can put away anywhere from 500 Indian Rupees to 1.5 million Rupees in a single fiscal year. However, there is a 15-year commitment period that cannot be shortened and can be extended only in 5-year increments.

PPF has a 15-year lock-in term but allows for partial withdrawals beginning in the 7th year. PPF interest rates are set by the Indian government and adjusted regularly. For the final quarter of Fiscal Year 2022/23, the PPF interest rate is now at 7.1% per year.

Benefits of Investing In PPF

There are advantages to the Public Provident Fund (PPF) as well. Some of the benefits of this investment strategy are briefly discussed below.

There is no chance of losing money investing in PPF because it is guaranteed by the government.

Only a select few investments qualify as EEE (Exempt-Exempt-Exempt), and PPF is one of them. This means that both the initial PPF investment and the maturity amount are exempt from taxation.

You can get started with PPF investment with as little as Rs. 500. Because of this, it’s within reach of virtually any investor.

SIP Vs PPF: Which is Better?

This question is trickier than it first appears to answer. Investing in a mutual fund through a systematic investment plan (SIP) may be the best option for you if you are a risk-taking investor who values the potential for greater profits. In addition, there is no minimum investment requirement, no lock-in period, and high liquidity.

On the other hand, if you are an extremely conservative investor who values safety of investment over potential profit, a PPF may be the best choice for you. This is due to the fact that PPFs offer a wide variety of tax breaks, full confidentiality, and a low entry barrier.

In contrast to a SIP, which allows for immediate redemption upon request, the Public Provident Fund is a long-term investment with a minimum commitment of 15 years (owing to the lock-in period).

Conclusion

You should consider your financial goals and risk tolerance before deciding between a mutual fund SIP and a PPF. However, due to the low restrictions on PPF and mutual fund SIP investments, it is possible to contemplate investing in both at the same time. This will make it possible for you to reap the rewards of a SIP or a PPF.

The first step in beginning a systematic investment plan with a mutual fund is to open a Demat account in your name. Motilal Oswal’s website is where you may sign up for a free online trading and demat account. After you register an account, you’ll be able to put money into stocks, mutual funds (through SIP), and even commodities as they become available.